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The Child Care Tax DeductiorICredit John R. Nelson, Jr:, and Wendy E. Warring INTRODUCTION The child care tax deduction/credit originated in 1954 as an itemized deduction for work-related day care expenses. It was limited to $600 and to households in which both the husband and wife worked and that had an adjusted gross income of $4,500 or less. Designed as both a labor supply and a relief measure, the deduction reached an average of 290,000 households in the first decade after its enactment. (For these data and their sources see Appendixes A and B.) To reflect the rise in family incomes, Congress updated it in 1964 by increasing the income ceiling to $6,000 and the maximum deductible amount to $900 for two or more children. These changes allowed an additional 125,000 households to claim the deductions, but the tax savings per household still remained the same--approximately $70 per year. By 1971, constant agitation for revision of the deduction cul- minated in several significant changes. It was renamed the "job development deduction," and Congress, specifi- cally the Senate, tripled the income ceiling to $18,000, increased the deductible amount eightfold to $4,800 per year, and allowed the deduction of housekeeping services to stimulate the employment of low-income persons as domestic housekeepers. These changes doubled the annual average tax saving per household to $135. Less biased against working mothers, Congress sought to provide tax relief to dual-career families in middle- and upper-income brackets. This revision altered one major purpose of the original deduction: relief for low-income families. It became instead a tax incentive for their employment in higher-income households. 206

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207 In 1975, Congress updated it again by raising the income ceiling to $35,000, but this change was principally a compromise measure to postpone for further deliberation a major overhaul or one aeauccl~n. -l-l~a~ ~v=~. ma.__ came to fruition in 1976 when Congress dropped the job development title, removed the income ceiling, and trans- formed it into a 20-percent tax credit on care-related expenses up to $2,000 for one dependent and $4,000 for two or more dependents. As a credit, all eligible house- holds could claim the tax benefit whether or not they itemized deductions on their tax returns. In 1977, 2.85 million households claimed the child care credit and saved $517 million in income taxes--an average savings of $177 per household. This case study examines each of these four major revisions in the child care deduction/credit. In many respects the subject of this study represents a different genre from the other two cases. It is not a federal program or regulatory policy. Its enactment entails no new bureaucratic structures and very little administrative history. Yet income is transferred, regulations are promulgated, and the society is affected. Indeed, taxation is the one federal policy that touches virtually every citizen in a regular, direct, and visible manner. Three elements affect this policy formation process: the revenue and distributional effects of proposed changes, the equity of such changes, and the maintenance of incremental increases and decreases in progressive tax rates. The first consideration is an obvious outgrowth of the purposes of taxation: to raise revenue. The second seeks to ensure equal treatment for taxpayers in similar situations. The third is to avoid abrupt shifts in tax rates across small changes in income. The policy-making processes are confined chiefly to the House Ways and Means Committee, the Senate Finance Committee, the Office of the Assistant Secretary of the Treasury for Tax Policy, and the Joint Committee on Taxation. Each has an institutional role. The Joint Committee staff serve as technical adviser to the Congress. The bills originate in Ways and Means, which tends to be conservative in its measures. It is distinc- tive among congressional committees in its careful deliberations, its close alliance with professional staff, and, until recently, . . ~ ~ ~ _ _ ~ _ . , - ; _ _, . . . its lack of subcommittees. Moreover, its legislation generally comes to the floor under a closed rule, though amendments are sometimes permitted. Since Wilbur Mills's departure as chairman,

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208 however, these committee attributes have changed somewhat The Senate Finance Committee has similar attributes, with one major difference. Finance Committee bills are open to amendment on the Senate floor. Consequently, its measures are often amended to provide more generous tax benefits than House measures. The committee has less than final determination over its legislation, yet the Senate debates over tax provisions, Joseph A. Pechman observes, "rank among the most informed discussions held on the Senate floor." , . The role of the U.S. Department of the Treasury and its Internal Revenue Service (IRS) is to maintain the structural integrity of the tax system, to curb revenue losses from the special benefits so popular with Congress, and to represent the President's tax proposals before Congress. Treasury works to accomplish this through direct negotiations with congressional committees at each stage in the tax-writing process. Once passed by Con- gress, the tax bills become operative in substantially the same form in which they are written. Since 1948 only once has a president vetoed a tax bill: that veto by Gerald Ford in 1975 was the result of a conflict with Congress over a concomitant spending ceiling, not the tax provisions themselves. Although numerous judgments are made by the IRS and federal tax courts on specific applicability in individual cases, the basic principles and structure of the policy remain unimpeded between legislative enactments. The mechanics of the income tax are straightforward, though the nuances are often obscure to the point of unintelligibility. In principle, a taxpayer totals all income from wages, interest, dividends, alimony, etc., to arrive at a gross income. He or she then subtracts the allowable expenses incurred in earning that income (e.g., business and moving costs) to reach an adjusted gross income. These adjustments are "above-line" and open to all eligible taxpayers regardless of whether they elect the standard deduction or itemize. After calculating the adjusted gross income a taxpayer can either take a fixed standard deduction (now referred to as the "zero-bracket amount") or itemize deductions to arrive at his or her taxable income. In either instance the taxpayer is allowed a fixed exemption of a particular dollar amount from the taxable income for himself or herself and each dependent. The actual tax is based on the taxable income. From the tax itself a credit is allowed for certain items (or portions of items). A credit represents a specific

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209 dollar amount subtracted directly from the tax liability. An adjustment to gross income or a tax credit benefits all eligible taxpayers regardless of their decision to itemize deductions. A deduction benefits only those who elect to itemize. Generally speaking, a deduction and an adjustment benefit higher-income groups more than lower- income groups, while a tax credit has the opposite effect. . THE ORIGINS OF THE CHILD CARE DEDUCTION In 1861 the federal government levied the first tax on individual incomes to raise urgently needed revenue for the Civil War .2 Until that time customs duties, excise taxes, and land sales provided all federal tax revenues. The income tax was a straightforward 3 percent levy on incomes up to $10,000 and 5 percent on incomes above that amount. The law allowed each taxpayer an exemption of $600. Congress raised tax rates in the next years to 10 percent on a net income between $600 and $S,000, 12.5 percent on income between $5,000 and $10,000, and 15 percent on income above $15,000. When the income tax law expired in 1871, the rate was 2.5 percent and the exemp- tion $2,000. After its expiration, excise taxes and customs duties resumed their runcclon or ~u~'>'l~y ,~v=~.- for the government until 1909. Congress attempted to revive the income tax in 1894. The tax was 2 percent on individual and corporate net income, with a $400 exemption for individuals. Personal property received by gift or inheritance was included in net income. The Supreme Court, however, declared the act unconstitutional in 1895. It ruled that the portion of the personal income . ~ ~ ~ ~ , - ; _ ~ _ ~ ~ ~ ~ ~ 1 ~ ~ tax levied on income from land was a "direct" tax and in violation of the constitutional requirement that direct taxes had to be apportioned among the states according to population. Despite the decision, agitation for an income tax continued. As the American economy matured and industry gained the strength to withstand foreign competition, Congress reduced tariff rates. Many groups saw the income tax as a way to compensate for the resulting revenue losses and inject a progressive element into the revenue ~ TO ~ ~1 ~ ohm ^~=cc~rv ctAt-~-c- ratified the 16th amendment to the Constitution and gave Congress "the power to lay and collect taxes on incomes, from whatever source derived, without regard to any census or enumera- tion." Shortly thereafter, Congress passed the income by ~ ~111 e 111 ~"~= 11~~~ ~LIZ ~ ~~ ~~~ ~ ~ ~

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210 tax law. The tax applied to wages, salaries, interest dividends, rents, entrepreneurial incomes, and capital gains. There were two categories of tax levies: normal, a flat 1 percent rate on all income above $3,000 ($4,000 for married couples), and surtax, a progressive rate from 1 percent to 6 percent on larger incomes. It allowed deductions for interest on debts, nonincome tax payments, and business expenses. State and local government employees were exempted from paying the tax; the interest on federal, state, and local government bonds was also exempt. The surtax, however, applied to income exempted from the normal tax. In 1917, Congress introduced a credit for dependents and a deduction for charitable contributions. Successive changes continuously complicated the 1913 law. Not until 1939 did Congress codify the revenue acts that had accumu- lated over the years. By today's standards exemptions were high and few incomes were large enough to be subject to even the lowest tax rate. Prior to World War II the income tax applied mainly to a small number of people with high incomes and created tax liabilities of approxi- mately $1 billion. The 1939 code did not remain unmolested for very long. World War II brought a new dimension of complexity to the tax laws. In the national effort to raise revenue, exemp- tions were greatly reduced, rates were increased, and substantial growth coupled with an upward shift in income occurred in the tax base. Congress also made a series of structural changes in the tax code. Beginning with tax- able year 1941, taxpayers whose gross incomes did not exceed $3,000 from specified sources were able to submit a simplified return. The return allowed them to deduct a standard percentage of earned income from their adjusted gross income. Those who did not use the short form were required to itemize their deductions. In 1944 legislation further simplified tax returns by making the standard deduction part of the Internal Revenue Code. Taxpayers had the option of deducting 10 percent of their adjusted gross income up to $500 from 1944 to 1947 and $1,000 from 1948 to 1970. When it was first introduced, over 80 percent of taxpayers used the standard deduction. The growing complexity and the residue of anachron- istic provisions had rendered the tax code difficult to understand and administer. At the outset of the 1950s the Treasury Department and the Joint Committee on Taxation made preparations to simplify and reorganize the 1939 Code. These resulted in the Internal Revenue Code

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211 of 1954, the last codification of the tax law to the present. The groundwork for a major tax revision began as early as l9Sl, but most of the legislative tax writing took place in the House Ways and Means Committee during the first session of the 83rd Congress. In that session the committee began drafting H.R. 8300, the nucleus of the 1954 code. The bill contained approximately 27 major new tax provisions affecting both corporate and individual taxpayers. Among these was an itemized deduction for child care expenses. As one might anticipate, the child care deduction ignited some controversy in Congress. The issue of a child care deduction was not new. Litigation on the subject began as early as 1939. In that year a married couple contested the IRS's exclusion of child care as a business deduction. The plaintiffs argued that expenditures for nursemaids should be con- sidered an ordinary and necessary business expense of the wife. They contended that expenses incurred to care for their young children were necessary to earning an income because without some provision for care the wife would not be free to leave her children to pursue employment. The court characterized their argument as the "but for" test and rejected it as too broad: The fee to the doctor, but for whose healing services the earner of the family income could not leave his sickbed; the cost of the laborer's raiment, for how can the world proceed about its business unclothed . . . might all by an extension ~ ~ ~ ~ ~ _ ~ ~ ~ ~ of the same provision De conscruea as neck the operation of business and to the creation of income. Yet these are the very essence of those personal expenses the deductibility of which is expressly denied .3 The court explained that child care, like other aspects of family and household life, was nothing other _, than a personal concern because "the wife's services as custodian of the home and protector of its children are ordinarily rendered without monetary compensation." The same work performed by others is still of a personal nature. Although the court conceded that certain business expenses were often personal, such as entertainment, traveling expenses, or the wardrobe of an actor, it drew a fine line between activities that are ordinary to the direct accompaniment of business pursuits and those that relate "in some indirect and tenuous degree" to employ

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212 ment but are "of a character applicable to human beings generally. t'4 Expenditures for child care, the court concluded, existed on a personal level regardless of an individual's occupation. Taxpayers did not give up after the 1939 decision. Several subsequent cases claimed a child care deduction as an allowable expense for the production of income under Section 213. In each case, the court affirmed that child care expenses were not deductible under existing tax laws. The thrust of the court's decisions was that all personal deductions were granted by legislative discretion and could not serve as precedents for new deductions, however similar they might be in principle . . Indeed, the same argument was applicable to business deductions. What constituted an expense "ordinary and necessary" to business was by no means unambiguous. The courts generally followed the legislature and IRS in their determinations of proper business expenses. Like personal deductions, business expenses were as much a matter of fiat as principle. No single consideration readily explains why members of Congress and the administration proposed a child care deduction in the 1954 code. Apparently, several circum- stances turned the cases brought by a few determined taxpayers into law. In 1953 there were 19 million women in the labor force, who constituted 33 percent of the entire working population: 27 percent of all married women worked, and there were approximately 9 million working mothers. About 25 percent of working mothers (2.25 million) had children under the age of 18, and 16 percent (1.44 million) had children under 6 years old. In other words, 64 percent of the working mothers with minor children had preschool children.5 Social mores notwithstanding, working mothers were fast becoming a fact of American life. There was some precedent for federal involvement in helping working mothers care for their children. In 1942 the Federal Works Agency obtained an interpretation of the Lanham Act for defense housing and public works that allowed funding of day care facilities. This program spent $52 million over three years to care for 109,000 children across the country. When World War II ended so did federal aid, but during the Korean War, Congress passed an authorization for day care grants: the Defense Housing and Community Services act. Although with this act Congress had formally acknowledged the need for day care services due to the steady influx of women into the

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213 labor force, the provision was never funded and the authorization lapsed with the armistice. In 1953 the Children's Bureau and the Women's Bureau of the Depart- ment of Labor sponsored a conference on services for the children of working mothers. They stressed the growing number of mothers entering the labor force to fill vacant jobs and to supplement family income. The conference concluded that these women, many the sole support of their children, required government aid for their children's care. The issue, therefore, was far from dormant.6 There was much support for some sort of child care deduction. The CIO, the American Nurses Association, the American Hospital Association, the American Federation of Government Employees, the Office Employees International, the American Bar Association, and the American Institute of Accountants all supported a deduction. A report of the Joint Committee on Taxation observed that a "large number of letters" had recommended special tax treatment for child care expenses ;7 29 members of Congress proposed or spoke in favor of such provision. The deduction was not a partisan issue. It turned upon considerations less cosmic than the then heated battle between Democrats and Republicans over redistribution and balanced budgets. Proponents offered three rationales for the deduction. First, child care expenses were necessary to the conduct of business and hence deductible. Second, working mothers were compelled to seek employment by economic necessity, thus defraying their child care expenses was a justifiable relief measure. Finally, tax subsidies for child care would enable welfare mothers to avoid the dole and support their children through employ- ment. The costs of the Aid to Dependent Children (ADC) _ program would thus decline. Within these basic overlapping rationales, there were many nuances among the bills. Generally, however, they raised two major questions: Should child care be treated as a business or personal expense, and what should define a taxpayer's eligibility for the deduction? The first question involved where the deduction should be allowed. Business expenses, as adjustments to gross income, were deducted before personal items, thereby reducing the taxpayer's liability regardless of whether he or she took the standard deduction. If the child care deduction were incorporated as a business expense, then the qualified population would include all otherwise eligible taxpayers with a dependent, whether or not they itemized their returns. The 75 percent of the taxpayers who took the

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214 standard deduction in 1954 would then be able to deduct child care expenses. The second question involved which taxpayers were eligible for the deduction. The taxpayer, naturally, had to have a dependent child and be gainfully employed. Some bills extended the deduction only to widows, widowers, and divorced or separated mothers. Others allowed all families with both parents working to claim it. Some placed income limits on families and varied the age limits for eligible dependents. Supporters of the deduction, who equated child care with a business expense, included the American Bar Association, American Institute~of Accountants, and American Nurses Association. An institute representative summarized this rationale in testimony before the Ways and Means Committee: "Taxable income," he stated, was only that portion of the gross amount earned that remained after expenditures "necessary and ordinary to the produc- tion of income" were subtracted. Since child care was an ordinary expense to the production of income, deducting it was therefore legitimate under the current code. An amendment to Section 23 of the 1939 code covering business deductions would only affirm what was true though miscon- strued by the courts. The American Nurses Association advanced a similar case. Congress, they argued, had recognized that it is equitable to tax only net income-- income actually available for the taxpayer's discretionary use. The association added that expenses such as alimony and entertainment, currently deductible under this prin- ciple, were more in the nature of personal expenses than are the payment of wages for services to a custodian of one's child.8 Representatives in Congress echoed the belief that a child care deduction was consistent with the principles of a business deduction. Many of their arguments, more- overy stressed not only the equitable nature of the deduc- tion, but also that a failure to enact the provision would prove discriminatory and inhumane. Representative Kenneth Roberts of Alabama, for example, argued that women and working mothers bore an unjust burden because of an outdated court decision. nit is a little hard," Roberts concluded, "to reconcile the present insensitive attitude on the part of the government which allows a lawyer to deduct entertainment fees lavished upon a prospective client . . . which will not grant this privilege to the working mother who toils all day in the factory and works for her family in the evening in the hope that her children may have a better life."9 In

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215 sum, several members of Congress and advocates from various interest groups in favor of a child care deduction saw the principle of a business expense deduction as a precedent for allowing a deduction for child care. The second basic rationale advanced the child care deduction as a relief measure for working women. Supported by the CIO and other unions with female members, this argument involved debate on a wider range of issues. The legislators favoring this position needed at the very least to prove that women were compelled to work. They had to disabuse their fellow legislators of the current notion that women worked only for personal pin money.~ They had to demonstrate, in the words of one representa- tive from New York, that the "great majority of these (working) mothers would sooner prefer to remain at home and devote themselves to raising their children were it not for economic circumstances which force them to become the breadwinners of their family." The most obvious and persuasive example of economic compulsion was that of widows and widowers who were the sole means of support for their children. The case became more difficult to prove when mothers worked despite the presence of a working husband. Opponents of a broad deduction asked why these wives could not stay home where they belonged. Why, in other words, should the deduction not be restricted to single parents? Supporters answered that most women worked because their families desperately needed the money. The low income of households with working women demonstrated that necessity, not choice, dictated these mothers' entry into the labor force. The deduction was a relief measure for them and not an induce- ment for those mothers still at home to seek employment. The evidence, they concluded, demonstrated that very few mothers work if they have a choice. The third rationale involved the potential of lowering welfare costs by providing a tax incentive for ADC fami- lies. Representative James Davis of Georgia observed that "this nation spends hundreds of millions of dollars each year for child welfare, aid to dependent children, etc., but when a mother has the courage to support her children by working rather than accepting government aid, she is penalized by the law." Others praised the working mother for her "courage" and "independence" in working when the cost of day care rendered it more lucrative to stay home "in idleness and rely on the country welfare board to take care of her." The child care deduction, Davis emphasized, would guarantee working parents the

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216 money to find "proper care" for their children. He promised that the deduction would aid in "keeping families together, preventing juvenile delinquency, and having children reared under influences conducive to good citizenship." 2 The implicit counterpart of women's needing to work was the economy's need for women workers. "An important point to make," one member of Congress explained, "is that not only do women work because they have to, but under our present economic system we need these women workers."~3 The memory of World War II was fresh, and the United States was involved in the Korean War. Testifying before the Ways and Means Committee, one witness adduced that if the country's defense production and military requirements continued to expand, more women would be called to work. Women, she added, are the nation's greatest source of reserve labor needed not only in times of emergency, but also in peacetime professions such as teaching and nursing. 4 In the early 1950s there was a serious labor shortage in these professions traditionally filled by women. Many contended that the low wages prevented women from continuing to work in these fields after having children. They simply could not afford to work and pay for the care of their children. Representative Roberts explained that "the present inequitable tax law has an adverse effect on the welfare of the country by making it difficult to keep women in the fields of teaching and nursing where a critical labor shortage exists." These jobs were underpaid to begin with, and "nondeductible child care expenses" made it "hardly worthwhile for these women to continue to work once they have families."~5 The American Hospital Association and the American Nurses Association agreed. The nurses association contended that although more nurses were working in 1954 than at any other time, a critical shortage of nursing services in cities and rural areas still existed. The shortage could be remedied in part by allowing working women to deduct expenses for the care of their children. They pointed out that although 60 percent of all registered nurses were active in nursing, only about a third of those with dependent children were practicing their professions. Inactive nurses, who were otherwise willing to work, simply could not afford to do so. Tax relief, they contended, would create incentives for women to return to work. 6 There was a certain paradox between the labor supply and rationales of economic necessity. Those who argued

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255 1976), 1090-1096; and C. McCarthy et al., The Federal Income Tax: Its Sources and Application (New Jersey, 1968), passim. 3 Henry C. Smith v. Commissioner, 40 B.T.A. 1038. 4 Alan Feld, "Deductibility of Expenses for Child Care and Household Services: The New Section 214," Tax Law Review, 27 (1972); and William Klein, "Tax Deductions for Family Care Expenses," Boston College Industrial and Commercial Review, 14 (1973). l 5 Bureau of the Census, Statistical Abstract of the United States, 1954. 6 Gilbert Steiner, The Children's Cause (Washington, D.C.: 1976), 16-18; and Department of Labor: Women's Bureau, Planning Services for Children of Employed Mothers (Washington, D.C.: 1953), 10. 7 Report of the Joint Committee on Taxation (April 21, 1953), 52-55. BUSS. Congress, Hearings before the House Committee on Ways and Means on General Revenue Revision, 83:1 (1953), 49-52. 9Ibid., 37-41. Unrepresentative Samuel W. Yorty, February 18, 1953, Congressional Record--Appendix, A937. unrepresentative Louis B. Heller, Hearings before . . . Ways and Means General Revenue Revision, 57-58. |2 Representative James C. Davis, June 9, 1953, Congressional Record--Appendix, A4191; Representative Wesley D. Ewart, Hearings before . . . Ways and Means on General Revenue Revision, 58-59. and Davis, ibid., 33-36. i3 Representative Leonore K. Sullivan, Hearings before . . . Ways and Means on General Revenue Revision, 31-33. |4 Nancy Henderson, ibid., 61-63. Tibia., 37-41. i6 Ibid., 49-52. i7Ibid., 53. Rabid., 63. i9Report of the (Treasury Department) Subcommittee on Deduction of Expenses of Child Care (July 15, 1953), Treasury Department Document (cited henceforth as TDD); and The Budget: Message from the President, January 21, l9S4, House Document 83-264. 2 House Report 83-1337 (1954). The exact source of the "available data" on child care costs and age is not clear from the legislative record. Apparently, the committee was referring to a study of child care arrangements in Wichita, Kansas.

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256 2 1 Senate Report 83-1622 (1954). 2 2 Ibid. 2 3 Conference Report 83-2543 (1954). The revenue and household estimates are given in the respective reports of each chamber. 24 Internal Revenue Code (1954), Section 214. 2 5HR12470, 87th Congress, 2nd Session (1962). The survey of bills related to the child care deduction is drawn from the Congressional Record--Indices (1957-1962). 2 6 James Sundquist, Politics and Policy: The Eisenhower, Kennedy and Johnson Years (Washington, D.C.: 1968), 34-56. 27 Message from the President (January 24, 1963), House Document 88-43. 2 ~ Although the commission issued its final report subsequent to the administration's proposals for tax reform, the commission's recommendations and general findings were known to the administration when it drafted the proposals. 29 President's Commission on the Status of Women, Report of the Commission on Social Insurance and Taxes 1963), passim. (Washington, D.C.: 3 Ibid. 3 president's Commission on the Status of Women, Re rt of the Committee on Home and Community P (Washington, D.C.: 1963), passim. 3 2 U. S. Congress, Hearings before the House Committee . on Ways and Means on the President's Tax Message, 88:1 (1963), 6-7, 42-43, 86-87, 3 3 Ibid., 750-761. 3 4 House Report 88-27 (1963); and P.L. 88-4. 35 February 26, 1963, Congressional Record--House, 2999; and March 19, 1963, Congressional Record--Senate, 4544-4545. 36 (Treasury Department) Subcommittee Report: Child Care Deduction (January 17, 1963), TDD. 37 Surrey: Memo to Files (April 23, 1963), TDD; and Surrey: Child Care (June 5, 1963), TDD. 3 ~ House Report 88-749 (1964). 3 9 Undersecretary Henry H. Fowler to Assistant Secretary of Labor Esther Peterson, Augus_ 28, 1963, TDD; and Bureau of the Budget--Legislative Reference File G3-6/63.6: Volume II (1963) Record Group 51, National Archives. 4 October 3, 1963, Congressional Record--Senate, 23252-23253. 4 ~ Senate Report 88-830 (1964) 202-208, 592-595. \ .

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257 42 Ibid. 4 3 Conference Report 88-1149 (1964); and P.L. 88-272, Sections 212-214. 44 Congressional Record--Indices (1965-1971); Statistics of Income: 1960, 1966. 4 5 May 4, 1966, Congressional Record--House, 9845. 4 6 Nolan to ABA, TDD. 4 7 Schuldinger: Deduction for Child Care (November 24, 1971), TDD, discussed the Viorst proposal in detail. 48 November 15, 1971, Congressional Record--Senate, 41251-41252. 4 9 Citizens' Advisory Council on the Status of Women, Women and Their Families in Our Rapidly Changing Society (Washington, D.C.: 1968), passim. 50 Citizens ' Advisory Council on the Status of Women, Report of the Task Force on Women's Rights and Responsibilities (Washington, D.C.: 1970), passim. Noncitizens' Advisory Council on the Status of Women, Re rt of the Task Force on Social Insurance and Taxes po (Washington, D.C.: 1968), passim. 52 Ibid. S 3 Ibid. S 4 Grace Blumberg, "Sexism in the Tax Code: A Comparativ'e Study of Income Taxation of Working Wives and Mothers," Buffalo Law Review, 21 (1971-72), passim. 55 June 4, 1971, Congressional Re_ord--Senate, 18106. "VFor a discussion or the Nixon aam~n~scrac~on-s Family Assistance Plan see Daniel P. Moynihan, The Politics of a Guaranteed Income (New York: 1973). 5 7 June 4, 1971, Congressional Record--Senate, 18106 5 Senate Report 92-437 (1971). 5 9 Ibid. 6 November 12, 1971, Congressional Record--Senate, 40934-40935. 6} Ibid. 6 2 November IS, 1971, ibid., 41251-41252. 6 3 Ibid., 41252. 6 4 Ibid., 41253. 6 5 Ibid., 41253-41256. 6 6 Bird: Child Care Deduction (November 30, 1970), Joint Committee on Taxation Document (cited hereafter as JCTD); and Michael Bird, Joint Committee on Taxation, to Stanley S. Surrey, June 22, 1971, JCTD. 67 Office of Tax Analysis: Treasury Position before the Conference Committee (November 24, 1971), TDD; and Re: Tunney Amendment (no date), TDD. 68 Ibid.

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258 69 Ibid. 7 Conference Report 93-708 (1971). 7 Miriam Schwartz Alers, "Dependency and the Loss of Benefits Under Section 214 of the 1971 Tax Code," Case and Comment (November-December 1974), 44-50; Blumberg, "Sexism in the Tax Code," passim; Feld, "Deductibility of Expenses for Child Care," 415-447; Carol S. Greenwald and Linda G. Martin, "Broadening the Child Care Deduction: How Much Will It Cost?" New England Economic Review (September-October 1974), 22-30; Roland L. Hjorth, "A Tax Subsidy for Child Care: Section 210 of the Revenue Act of 1971," Taxes, 50 (1972), 433-445; John B. Keane, . "Federal Income Tax Treatment of Child Care Expenses," Harvard Journal on Legislation, 10 (1972), 1-40; and Klein, "Tax Deduction for Family Care Expenses," 917-941. 72 John V. Tunney, "You've Been Singled Out"' Single Parent (May, 1972), 3-5. 7 3 October 5, 1972, Congressional Record--Senate, 33869. 7 4 Ibid., 33870-33873. 75 Frederic W. Hickman, Deputy Assistant Treasury Secretary to Long, April 28, 1972, TDD. 7 6 Congressional Record--Indices (1972-75); and Oppenheimer to Hickman: Simplification, Prior Conference with Larry Woodworth (April 4, 1973), TDD. 77Balle to Hickman: Child Care Deduction (April 4, 1975), TDD. 78Canty: Child Care (May 21, 1974), TDD; and Joint Committee on Taxation Report 22-74 (November 18, 1974), 4. 79 Bird to Woodworth: Further liberalization of the child care deduction (June 4, 1974), JCTD. 8Woodworth to Representative James R. Jones, October 20, 1975, JCTD. Congress and the Nation, IV, 89-90, 100. ~ 2 Ibid., 91-95; March 12, 1975, and March 21, 1975, Congressional Record--Senate, 53780-53781, 54651-54652. ~ 3 March 21, 1975, Congressional Record--Senate, 54652-54653. ~ 4 Senate Report 94-36 (1975); and Conference Report 94-120 (1975). Disinformation provided by staff and members of the House Committee on Ways and Means. ~6 Ibid. ~ 7 House Report 94-658 (1975). 88U.S. Congress, Hearings before the Senate Finance Committee, 94:2 (1976), 94; and Tax Simplification: Credit for child care expenses (May 17, 1976), TDD.

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259 89U.S. Congress, Hearings before the Senate Finance Committee, 94:2 (1976), 227; and July 21, 1976, Congressional Record--Senate, S12151-S12152. 90 July 21, 1976, Congressional Record--Senate, S12152-S12154. suboffice of Management and Budget, Legislative Reference File G3-14/75.5 (1976); and Conference Report 94-1515 (1976). 9 2 Calculations derived from Internal Revenue Service, Statistics of Income: 1976 (Washington, D.C.: 1978), 86. All figures are rounded. 9 3 House Report 95-1092 (1978). 94Ibid., and P.L. 95-600.

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Appendix A Legislative Changes in the Child Care Date of Final Eligible Eligible Size of Enactment Households Expenses Deduction 1954 widowed or divorced any expenses $600 maximum mothers, widowers incurred in regardless of itemized with children, caring for a number of deduction mothers with Inca- child or children pacitated spouses, dependent families in which physically or both parents work mentally in and f ile a joint capable of tax return caring for himself--if the care expense s allow th e parent (s) to pursue gainful, full-time employmen t . . 1964 (wives deserted by unchanged $600 for one the i r bus band s f or dependen t, S9 O O i temized one year were made for two or more deduction eligible in 1963) single fathers and f ether s w ith incapa c i bated w ive s adde d 1971 unchanged included $400 per Month expenses for allowed for in itemized housekeeping home care; out deduction of-home: S200 per month for one child, S300 for two, $400 for three or mor e 1975 unchanged unchanged unchanged i temi zed deduction 1976 a parent maintaining care expenses 20% credit for the household of a to allow care expenses up credit child, even if he parent to to S2,000 per is not eligible attend school year for one for the tax exemption, full-time, child, $4,000 for can credit care also for part- two or more; costs against his time work up maximum credit $400 taxes; a spouse to the amount for one child, deserted for six of income $8()0 for two or months or more is made more; all distinc eligible Lions between in and ou t-of -home care abolished 1978 unchanged unchanged unchanged c red i t 260

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Tax Deduction/Credit, 1953-197 8 Income Limitation Age Limi t Miscellaneous Estimated Provisions Revenue Loss - - $4,500, deduct ion reduced $1 for S1 over 1 imi tat ion-- phased out at $5,000 under 12 i ncome 1 imi t appl ies only to households i n wh ich both parents worked $140 million $6,000, same under 14 marg inal reduction none $20 mill ion S18, ooo, deductions re- duced 50d per S1 over 1 imitation-- phase-ou t a t S27, 60 0 under 15 income 1 imit applies to all households claiming the deduc t ion . . . $145 million S35,000 mar- g inal phase- out S44,600 none unchanged none S107 million unchanged payments to non-de pendent relatives, who are members of taxpayer 's household, a r e deduc t ible- provided their services constitute employment for social security purposes S325 million u nchang ed unc hen 9 ed all payments except those to a dependent or child under 19 of the taxpayer are eligible $36 million 261

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Appendix A (continued) Distr ibution of Households and Tax Savings by Income Class 1954 Under $5, 000 Over S5,000 213,000 $ 12 million (67%) 60,000 S 6 million (33%) Totals273,000 S 18 million 1966 Under S5,000 99~000 $ 7 million (33%) SS - $10,000 136,000 $ 12 million (57%) $10 - $15,000 14,000 S 1 million (5%) Over Sl5,oOo 5,000 S 1 million (5% ) Totals 254,000 $ 21 million 1972 Under S5,000 47,000 $ 4 million (2%) $5 - $10,000 455,000 S 49 million (24%) Slo - $15,000 625,000 S 74 million (36%) Over $15,000 442,000 $ 81 million (39%) Totals 1,569,000 $208 million 1975 Under S5,000 8,000 S 1 million (.4%) $5 - S10,000 344,000 S 52 million (19%) Slo - $15,000 604,000 S 96 million (35%) $15 - S20,000 575,000 $103 million (37%) Over S20,000 134,000 S 24 million (9%) Totals 1, 666, 000 S275 million 1976 Under S5,000 27,000 S 3 million (.7%) $5 - $10,000 365,000 $ 59 million (13%) $10 - S15,000 600,000 $ 89 million (19%) S15 - 20,000 709,000 Slll million (24%) Over $20,000 959,000 S196 million (43%) Totals 2, 660, 000 $458 million not available 262

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